The
plaintiff in this case, 11333 Incorporated
(“11333”), seeks damages against defendants
Certain Underwriters at Lloyd's, London
(“Underwriters”) and HUB International Insurance
Services, Inc. (“HUB”) based on the insurance
11333 believes it had or should have had when Hurricane Ike
struck the Texas Gulf Coast in 2008. Before the Court are
motions for summary judgment filed by Underwriters (Doc. 109)
and HUB (Doc. 113), and a cross-motion for partial summary
judgment filed by 11333 (Doc. 142). Also before the Court are
four motions to exclude expert testimony. (Docs. 103, 106,
107, 120.) The Court now considers these and all accompanying
briefing.[1]

I.
FACTUAL BACKGROUND

The
following facts are not in dispute except where otherwise
noted.

A. The
Fund and the Avocet Loan

Formerly
known as “Investors Mortgage Holdings, Inc., ”
11333 is a licensed mortgage broker incorporated in Arizona.
(Doc. 110 at 2; Doc. 138 at 2.) The company arranges and
services mortgage loans. (Doc. 109 at 5; Doc. 137 at 3.) On
May 15, 2003, 11333 was designated as exclusive manager of
IMH Secured Loan Fund, LLC (“the Fund”), a
limited liability company that makes commercial and
subdivision real estate loans. (Doc. 110 at 3; Doc. 138 at
3.) The Fund was owned by roughly 4, 000 member investors.
(Id.) Until 2010, 11333 was a separate entity from
the Fund. (Id.) (The Fund acquired 11333 as a wholly
owned subsidiary in 2010.[2]See Doc. 110 at 19; Doc. 138
at 19.) In its capacity as the Fund's manager, 11333

had responsibility and final authority in almost all matters
affecting the Fund's business. These duties include
dealings with Members, accounting, tax and legal matters,
communications and filings with regulatory agencies and all
other needed management and operational duties.

(Doc. 142 at 3 (internal quotation marks omitted).) Loans
made by the Fund “were selected for the Fund by 11333
from loans originated by 11333, ” and the Fund relied
on 11333's “performance in obtaining, underwriting,
processing, making and brokering loans to [the Fund], and
determining the financing arrangements for borrowers.”
(Id.) By 11333's account, when it would
originate a loan for the Fund, it would obtain the borrower,
process the loan application, and broker the loan to the
Fund. (Id.) The Fund would then fund the loan when
it closed. (Id.)

On
April 28, 2006, the Fund made an $18 million mortgage loan to
Avocet Oceanfront Villas, LP (“Avocet”), a
subdivision land developer. (Doc. 110 at 6; Doc. 138 at 5).
11333 contends (though both defendants dispute) it
“originated” the loan before the Fund
“purchased” it by virtue of making it to
Avocet.[3] (Doc. 142 at 7; Doc. 110 at 7.) Avocet
used the loan to obtain and develop 146 acres for a
subdivision on the Bolivar Peninsula, a strip of oceanfront
land in Galveston, Texas (“the Avocet Property”).
(Doc. 113 at 4.) Pursuant to its loan agreement, Avocet
purchased an insurance policy from Evanston Insurance Company
(“the Evanston Policy”) covering any buildings on
the property, which was only one house used as a sales
office. (Doc. 110 at 7; Doc. 138 at 8.) Avocet's Evanston
Policy, which did not include coverage for flood or wind
damage, listed both the Fund and Investors Mortgage Holdings,
Inc. (11333's former name) as “additional
insured” parties. (Doc. 114-1 at 101.)

Over
the next year Avocet proceeded to clear out lots, pave roads,
install sewers and underground electrical wiring, and
construct the single house used as a sales office. (Doc. 109
at 6.) In 2007 Avocet stopped paying its premiums on the
Evanston Policy, lost its insurance coverage, and defaulted
on its mortgage loan. (Doc. 109 at 6.) The Fund foreclosed on
April 8, 2008, perhaps through 11333 as its manager. (Doc.
110 at 9; Doc. 138 at 11; Doc. 138-11 at 20.) The Fund then
deeded the Avocet Property to a subsidiary called IMH Special
Asset NT 139, LLC (“NT 139”), which the Fund had
created roughly two weeks before the foreclosure. (Doc. 109
at 6; Doc. 142 at 7.) The Fund would often create distinct
subsidiaries to manage specific assets in order to shield the
rest of the company from any liability the asset might later
produce. (Doc. 111-1 at 93.) NT 139 accordingly assumed and
retained ownership of the Avocet Property.

B. HUB

At some
point in time (it is unclear from the record when), 11333
reached out to HUB, an insurance broker, to obtain insurance
for “11333's business operations.” (Doc. 143
at 4; Doc. 148 at 2.) Both parties provide a cryptic
narrative about how exactly their relationship progressed.
From what it seems, the parties first interacted in 2007,
when HUB procured for 11333 a “Mortgage Bankers/Brokers
Errors and Omissions” policy (“E&O
Policy”) from Underwriters. (Doc. 111-1; Doc. 113 at 5;
Doc. 142 at 4.) The date on which the policy was first
purchased is unclear from the record, though likely it was in
May of 2007. See Doc. 138-11 at 24.

From
there the chronology gets murkier yet. By 11333's
account, at some unspecified point in time it provided HUB
with a copy of the Confidential Private Placement Memorandum,
a document given to the Fund's investors describing the
Fund's operations and explaining 11333's involvement
as the manager. (Doc. 142 at 4; Doc. 143 at 4.) The record,
however, reveals that 11333's only evidence that HUB had
this document was the assumptions and speculations of a
single witness. See Doc. 136-1 at 45-47. A close
reading of the record does not show any testimony supporting
11333's assertion. But as discussed below, even if there
were such evidence, it would not affect the outcome of the
present motions.

The
E&O Policy was the only coverage HUB ever obtained for
11333. (Doc. 142 at 14.) The policy named 11333 (under its
former name) as the principal insured and did not name the
Fund or NT 139 as insureds. (Doc. 110 at 13-14; Doc. 138 at
17-18.) The policy had an initial effective date of May 23,
2007, and extended to May 23, 2008. (Doc. 138-11 at 25.)
11333 signed an application to renew the policy for a
one-year period and submitted it to Underwriters on May 27,
2008. (Doc. 113 at 5-6.) The renewed policy (the “08-09
E&O Policy”) became effective on June 22, 2008, and
remained in effect until June 22, 2009. (Doc. 113 at 5.) The
08-09 E&O Policy is the only policy at issue in this
case.

C. The
08-09 E&O Policy's Terms

The
Mortgage Bankers/Brokers Errors and Omissions Insurance here
covers the mortgage broker for diverse losses and
liabilities, including employee dishonesty, theft or loss of
documents, forged checks and documents, counterfeit currency,
fraudulent mortgages, computer crime, computer viruses, at
least six types of loss from mortgage errors and omissions,
some kinds of theft by principals of the insured, defense
expenses for officers and directors, and more. (Doc. 111-1.)
At issue in this lawsuit are two types of the mortgage errors
and omissions coverage. One is for certain losses resulting
from the insured mortgage broker's negligent failure to
obtain adequate coverage for “Fire and Extended
Coverage insurance” and “Flood insurance.”
(Doc. 111-1 at 17-18.) The other protects only the insured in
limited circumstances and independent of the insured's
own negligence. (Doc. 111-1 at 20.)

Some of
the diverse coverages in the 08-09 E&O Policy are
third-party coverages; that is, they indemnify 11333 for its
liability to third parties. But much of the policy is
first-party coverage for 11333's own losses, sometimes
losses from its own negligence. In examining any coverage,
attention must be given to whether it is first-party or
third-party coverage or both.

The Underwriters hereby undertake and agree to indemnify the
Insured for:

(11.1) Mortgagee Interest

Loss to the Insured's mortgagee interest in real property
or to an Investor's interest in real property on whose
behalf the Insured is servicing a mortgage, which loss is
discovered by the Insured during the Certificate Period,
provided that such loss is a direct result of an error or
negligent omission on the part of the Insured or its
Designated Agent in failing to obtain or maintain

(i) Fire and Extended Coverage insurance, or

(ii) Homeowner's Insurance, or

(iii) Mortgage Redemption Life insurance, Accident and Health
insurance, or Accidental Death and Dismemberment insurance,
or

(iv) Flood insurance covering real property located in
special flood hazard areas (where flood insurance has been
made available under the provisions of the National Flood
Insurance Reform Act of 1994 and any amendments thereto)

if, by reason of such error or negligent omission, at the
time of the loss there is no such insurance in force or such
insurance in force is inadequate as to amount or such
insurance in force fails to contain a mortgagee clause.

Mortgagee Interest is further extended to include ownership
interest in real property obtained through foreclosure or by
receipt of deed in lieu of foreclosure but in respect of (i),
(ii) and (iv) above.

(Doc. 111-1 at 17-18 (bold in original).) (Words in bold are
defined terms in the policy.) This Agreement indemnifies
11333 for its own losses. It also indemnifies 11333 for its
liability for losses sustained by “investors” as
defined in the policy (i.e., purchasers of the mortgage in
the secondary market). 11333 passed up the opportunity to buy
more extensive coverage for liability to third parties based
on stricken text that would have included “Extended
Errors and Omissions Coverage” for “Professional
Indemnity.” (Doc. 111-1 at 22.) Additionally, the block
in the certificate for that coverage's extra premium is
left blank. (Doc. 111-1 at 7.) That coverage would have
indemnified 11333 for liability to third parties generally
for their losses arising out of 11333's errors or
omissions in rendering them professional
services.[4] (Doc. 111-1 at 22, 30.)

(ii) Loss to the Insured's Mortgagee interest or Owner
interest, including when acting as a mortgage servicing agent
or in a legal fiduciary capacity, in real property, which
loss was discovered by the Insured during the Certificate
Period by reason of physical loss or damage to said real
property directly caused by those perils covered under Fire
and Extended Coverage Insurance or Flood Insurance in such
amount as is required to be insured by the mortgagor to
comply with the National Flood Insurance Reform Act of 1994
or any amendments thereto, provided that such loss to the
Insured's interest is a direct result of

(a) the non-existence or inadequacy as to amount of such
insurance; or

(b) the Insured is unable to collect the loss, which would
have otherwise been covered under the perils provided by the
insurance required to be kept in place, wholly or partly,
under said insurance, despite reasonable efforts and
expenditures to recover said loss.

Coverage under this Insuring Agreement is limited to 90 days
from the date an Employee with supervisory responsibility in
the “In-House” insurance agency, foreclosure unit
insurance escrow unit or servicing department of the Insured
becomes aware that the required insurance is not in effect or
is inadequate as to amount or uncollectible.

Special
Conditions:

It is agreed that as a condition precedent to coverage under
1 - INSURING AGREEMENTS (11)(11.6)(ii) above that:

(1) the Insured shall incorporate in every mortgage agreement
entered into by the Insured on or after inception date of
this Certificate a condition requiring the mortgagor to
maintain Fire and Extended Coverage insurance and said Flood
insurance; and

(2) as to all prior mortgages existing before the inception
date of this Certificate, the Insured shall require that the
mortgagor shall maintain Fire and extended Coverage Insurance
and said Flood ...

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